Economics for Business Practices Mid Term Test 2023-2024 PDF

STUDENT ID: Economics for Business PRACTICE MID TERM TEST Time allowed: 2 hours Please make sure you have read and understood the following: Answer ALL questions by marking the correct answer in the grid at the end of the p...

STUDENT ID: Economics for Business PRACTICE MID TERM TEST Time allowed: 2 hours Please make sure you have read and understood the following: Answer ALL questions by marking the correct answer in the grid at the end of the paper. There are 50 questions in total. All questions have answer options A, B, C and D. Providing a wrong or no answer yields 0 points. Write your Student ID on the answer the test paper and answer grid provided. If you do not mark your ID on the test paper and grid your mark is likely to be zero. You have to hand in both the grid and the test when leaving the room. 1 STUDENT ID: 1. Which of the following is right match a) The level of consumer spending (Microeconomics) b) Subsidies paid to farmers (Macroeconomics) c) The level of UK exports (Microeconomics) d) The price of music downloads (Microeconomics) 2. Which of the following statements is correct? a) Economics is the study of how choices are made under conditions of scarcity, and the results of those choices for society. b) Economics is the study of money. c) Economics is the study of government. d) Economics is the study of the interactions between humans and nature. 3. Microeconomics is a study of which one of the following issues? a) The cooperation of large multinationals in supplying innovative products. b) The growth of the money supply through open market operations. c) The changes in the real interest rates. d) The relation between inflation and unemployment. 4. Which of the following is NOT a factor of production a) A new computer used by a small business owner b) The time worked by elementary school teachers c) A tractor used by a wheat farmer d) A share of stock issued by a firm 5. The central economic problem is a) scarcity b) the production of goods and services c) the lack of resources to do any economic activity d) none of the above 6. When the government chooses to use resources to build a dam, these resources are no longer available to build a highway. This choice illustrates the concept of a) Opportunity cost b) Macroeconomics c) Marketing mechanism d) Fallacy of composition 7. The production possibility curve a) refers to the technology used in such goods as computers and military aircraft b) marks the boundary between attainable combinations of goods and services and unattainable combinations c) once applied to U.S. technology but now refers to Japanese technology d) is also called the supply curve 2 STUDENT ID: 8. As shown in Table 1 below, a country is capable of producing the following combinations of goods and services per period of time, assuming that it makes full use of its resources. Table 1 Goods (units) 400 320 240 160 80 0 Services (units) 0 50 90 120 140 150 The production possibility curve is shown in Figure 1. Figure 1 450 400 350 300 250 Goods 200 150 100 50 20 40 60 80 100 120 140 160 Services Which of the following is an efficient and feasible combination of goods and services for the country to produce? a) 240 units of goods and 90 units of services. b) 300 units of goods and 40 units of services. c) 240 units of goods and 50 units of services. d) 100 units of goods and 160 units of services. 3 STUDENT ID: 9. Using Figure 2 below, select which combination of goods and services below is not possible. Figure 2 120 100 80 Goods 60 40 20 0 0 20 40 60 80 100 120 140 160 Services a) 100 units of goods and 0 units of services b) 80 units of goods and 80 units of services c) 80 units of goods and 50 units of services d) 40 units of goods and 100 units of services 10. Which one of the following is a feature of a mixed economy? a) Governments monitor the outputs of firms and tell them when they are producing too much. b) Firms only produce those goods with the highest quality. c) Governments use tax revenues to provide street lighting in the economy. d) Consumers, by buying their products, tell firms how their products should be produced. 11. “This year’s inflation rate is 2%” is an example of a a) Normative statement b) Negative statement c) Positive statement d) All of the above. 4 STUDENT ID: 12. The market demand curve is a) Obtained by summing each individual's marginal utility curve. b) The same as the market's marginal utility curve. c) Used to derive individual demand curves. d) The sum of the quantity demanded by each individual at each price. 13. Why is the demand curve for a normal good downward sloping? a) The demand curve is downward sloping due to the law of demand i.e. it shows the effect of an increase in price will be to increase the quantity of a good demanded by consumers. b) The demand curve is downward sloping due to the law of demand i.e. everything else remaining the same, a reduction in price will increase the quantity of a good demanded by consumers. c) The demand curve is downward sloping due to the law of demand i.e. as some goods cost more to produce than others. d) The demand curve is downward sloping due to the law of demand i.e. as consumers will only purchase luxury goods when they are on sale. 14. An excess in supply can be eliminated by which one of the following? a) Allowing the price to fall. b) Allowing the price to rise. c) Government increasing the current minimum price. d) Implementing policies to increase supply. 15. Based on recent census evidence, we know that the supply curve for milk is as follows: Qs = 180 + 24P: where P denotes the price measured in pounds per kg and Qs is the supplied quantity in millions of kilos per year. We also know that the demand curve for milk was: Qd = 355 − 26.6P: where Qd denotes the demanded quantity. The market clearing price and quantity of milk therefore are: a) The price is £4.64 per kg and the quantity is 176 kg b) The price is £3.46 per kg and the quantity is 263 kg c) The price is £2.36 per kg and the quantity is 300 kg d) The price is £5.56 per kg and the quantity is 350 kg 5 STUDENT ID: 16. A market is in equilibrium in figure 3 shown below at point PEQE. Identify the change in the diagram below which shows the effect of a negative supply shock. Figure 3 a) A shift in the demand curve from D to D2. b) A shift in the supply curve from S to S1. c) A shift in demand and supply to D1 and S2. d) A shift in demand and supply to D1 and S1. 17. Figure 4 below illustrates the market for Manuka Honey. The market is currently in equilibrium at point e. Figure 4 To which equilibrium point will the market move following a discovery of positive health benefit of Manuka Honey? a) Point b b) Point d c) Point f d) Point h 6 STUDENT ID: 18. Following with figure 4 in the Question above. The market is again in equilibrium at point e. To which equilibrium point will the market move following a rise in the wages of labour involved in producing Manuka Honey? a) Point b b) Point d c) Point f d) Point h 19. At price P with quantity purchased Q, which area in figure 5 below represents consumer surplus and which area represents producer surplus? Figure 5 a) Consumer surplus is represented by areas 1+2 and producer surplus by areas 3+4 b) Consumer surplus is represented by areas 1+2 and producer surplus by area 4 c) Consumer surplus is represented by area 1 and producer surplus by areas 3+4 d) Consumer surplus is represented by area 1 and producer surplus by area 2 20. When the price of cashew nuts fell from £8 per kg to £6 per kg, the quantity demanded for cashew nuts rose from 20,000 kgs to 10,000 kgs. Using the midpoint formula of price elasticity, what strategy should a firm use if it wants to maximize total revenue? a) Decrease the price of cashew nuts b) Increase the price of cashew nuts c) Reduce the supply of cashew nuts d) Do not change the price of cashew nuts 7 STUDENT ID: 21. The manager of Bambuzold Plc determined that for every 1% increase in price of their product, there was a 2% increase in the demand for walker crisps. Which of the following is likely to be their product? a) Avocados b) Cashew nuts c) Crisps d) A soft drink 22. Printer and Ink Cartridges are often bought together. A decrease in the price of printers will: a) Increase the supply for printers. b) Increase the supply for ink cartridges. c) Decrease the demand for ink cartridges. d) Increase the demand for ink cartridges. 23. Husna and her colleagues got a new job at the Dubai Mall that allowed their income to rise by 25%. Consequently, their demand curve for baked beans appeared to shift to the left. This shift suggest that: a) Baked beans are inferior goods b) The demand for baked beans is price elastic c) The price of baked beans rose above the equilibrium price d) The rise in income increased the demand of baked beans 24. A consumer spends their income on magazines and visits to the cinema. The preferences of the consumer are shown by the indifference curves in figure 6. Each curve shows a set of combinations of magazines and visits to the cinema between which the consumer is indifferent. Which curve shows the set of combinations from which the consumer would gain the least utility? Figure 6 a) The curve ICA. b) The curve ICB. c) The curve ICC. d) The curve ICD. 8 STUDENT ID: 25. Choose the correct option. Total utility will fall whenever a) Marginal utility is rising. b) Marginal utility is falling. c) Marginal utility is zero. d) Marginal utility is negative 26. Table 2 reports Roshni’s marginal utility of consuming daily cups of lemon ginger honey tea. Table 2 Q=1 Q=2 Q=3 Q=4 Q=5 Q=6 Q=7 MU 4 3 2.5 2 1.5 1 0.5 Given that the price of a cup of tea is £1.5, which of the following shows her total expenditure and consumer surplus for consuming 4 cups of lemon ginger honey tea? a) 6 and 5.5 b) 6 and 6.5 c) 6 and 7.5 d) 6 and 8.5 27. Yvonne allocates her weekly budget between buying books and coffee. The utility gained from the consumption of both goods is such that MUbook/Pbook < MUcoffee/Pcoffee, where MU represents marginal utility and P represents price. If Yvonne is a rational consumer aiming to maximize her utility, which one of the following choices would she make? a) Yvonne will consume only coffee and no books. b) Yvonne will buy relatively more books and relatively less coffee. c) Yvonne will buy relatively more coffee and relatively less books. d) Total utility of books/price of books is equal to the total utility of coffee/price of coffee. 28. Ahmed has £40 to spend on a combination of crisps and coke. The price for a packet of crisps is £3 and that of a coke is £2. Ahmed draws a budget line with crisps on the X-axis and Coke on the Y-axis. From these details, what is the marginal rate of substitution that will maximise Ahmed’s utility. a) 1.5 b) -1.5 c) -0.5 d) -2 29. Dean spends all his income on cinema films and soda. Films cost £6 each and sodas cost £0.50 a can. In a diagram with films on the horizontal axis and sodas on the vertical axis, Dean's budget line a) has constant negative slope. b) has a constant positive slope c) becomes steeper to the right d) becomes shallower to the right 9 STUDENT ID: 30. “When increasing amounts of a variable factor are used with a given amount of a fixed factor, there will come a point when each extra unit of the variable factor will produce less extra output than the previous unit”. This statement refers to: a) The law of diminishing marginal utility b) The law of diminishing returns c) The law of supply d) All the above 31. Suppose a firm has four techniques that can be utilized to produce 1,000 handbags. The cost of one worker is given to be £40 and the cost of one machine is £30. The firm can utilize five workers and one machine or one worker and six machines or two workers and five machines or three workers and four machines. Which technique would be chosen by the firm that is looking to minimize costs? a) The firm will choose five workers and one machine. b) The firm chooses one worker and six machines. c) The firm will choose two workers and five machines. d) The firm chooses three workers and four machines. 32. Emily varies the total output of her firm producing jeans by employing more labour to her fixed capital of machinery. When Emily employs 5 units of labour in her firm her total product is 500 pairs of jeans. When Emily employs the sixth worker her total product is 620 pairs and by employing the seventh worker her total product increased to 700 pairs. This show: a) that Emily is maximizing total productivity. b) that Emily must employ two more workers to improve productivity. c) the law of diminishing returns sets in when the seventh worker is employed. d) the law of total productivity. 33. What is an isoquant? a) It is a curve that shows the total cost for given prices of inputs. b) It is a curve that shows the average costs of production at different output levels. c) It is a curve that shows the different combinations of two inputs of production required to produce a given quantity of output. d) It is a curve that shows the combinations of labour and capital that can be bought with a given budget. 34. A wine merchant will supply bottles of Champaign at a wedding at £10 a bottle, but is willing to offer a 10% discount of the total bill if 50 bottles or more are purchased. What would be the firm's marginal revenue from the 50th bottle? a) £450 b) -£150 c) £10 d) -£40 35. The marginal cost curve cuts the average cost curve when a) The average cost curve is at its lowest point b) The total cost curve intersects the total revenue curve. c) The average cost curve is tangent to the average fixed cost curve. d) The average cost curve and the average variable cost curves are equal 10 STUDENT ID: 36. When a firm produces a level of output at a point where marginal revenue is equal to marginal cost a) It maximizes it’s profit b) It earns supernormal profit c) Its total revenue will be equal to its total cost d) Its total revenue is greater than total revenue. 37. Figure 7 below shows the Total Cost (TC) and Total Revenue (TR) functions of a given firm. At what output(s) does the firm maximise profit? Figure 7 TC TR a) Q=21 b) Q=0 and Q=56 c) Q =21 and Q = 56 d) Q = 40 38. Table 3 shows the average cost of a firm depending on the level of production. Table 3 Q 0 1 2 3 4 5 6 AC -- 32 24 20 24 25 26 Assuming that the company is operating in the long run what are fixed costs? a) £32 b) We cannot calculate without the information of total cost. c) £0 d) None of the above 39. Which one of the following defines constant returns to scale? a) When there is a proportionately larger increase in output compared to the increase in input. b) When inputs are increased by 10%, output increases by 20%. c) Discovery of a new technique of production. d) None of the above are correct. 11 STUDENT ID: 40. Individual Farmers who typically produce homogenous products (e.g wheat, cabbages) operate in a market where a) They are price takers b) Cartels are encouraged c) They face a vertical demand curve d) There are several barriers to entry 41. The firm shown in Table 4 below faces a downward-sloping demand curve. Over what price range is demand price elastic? a) Over £5 b) Over £3 c) Under £5 d) Under £8 42. Which of the following is true about a perfect competitive market a) Firms are price makers b) It has a horizontal demand curve c) It has a vertical demand curve d) There are several barriers to entry 43. The policy of limit pricing involves: a) Lowering price below average cost. b) Charging a price at the limit of what the market will bear. c) Lowering price to the point where no entry would occur. d) Sacrificing long‐run profits to obtain higher profits in the short-run. 44. In order to increase its sales, firm X requires to reduce its price; and as a result, it has a downward sloping demand curve. Firm X is likely to be operating in a a) Supplier’s market b) Buyer market c) Imperfect competitive market d) Perfect competitive market 45. Tacit collusion implies a) The formation of a cartel b) Firms keep to the price set by the an established leader c) A legal agreement between firms in a market to avoid competition d) An legal non-price competitive strategy in an oligopoly market 12 STUDENT ID: 46. Which of the following corresponds most closely to the economists’ notion of ‘normal profit’? a) The level of profits a firm makes by setting MC = MR b) The level of profit a firm makes when its TR = TC c) The level of profits that ensures a comfortable standard of living for the entrepreneur d) All of the above 47. In Table 5 we have revenues and cost information of companies A and B depending on the level of production. Table 5 Those firms are a) operating in the long-run b) operating in different time frames. c) While firm A is operating in the short-run, firm B in the long-run d. competing in the same market d) None of the above 48. Refer to Table 5. Are Firms A and B operating under perfect or imperfect competition? a) Firm A operates in the perfect competition and Firm B operates in imperfect competition. b) Firm A operates in imperfect competition and Firm B operates in perfect competition. c) Both of them operate in perfect competition. d) Both of them operate in imperfect competition 49. Which of the following corresponds most closely to the economists’ notion of ‘normal profit’? a) The level of profits a firm makes by setting MC = MR b) The level of profit a firm makes when its AR = AC c) The level of profit a firm makes when its TR = TFC d) The level of profits that ensures a comfortable standard of living for the entrepreneur 50. A firm in a monopolistic competitive market will sell a) a homogenous product b) a unique product c) the same product as a perfect competitive market d) None of the above 13 STUDENT ID: 14 STUDENT ID: 15